Dealing with TUPE - a users guide

Although the basic concept is relatively simple, the application of TUPE is, in practice, much more complicated.  One of the difficulties is that case law interpreting TUPE is often inconsistent and the goalposts are therefore constantly changing.  As an Employment Law specialist at Halebury, I come across TUPE issues regularly and offer here some of the key areas.

Firstly, be aware that TUPE does not apply to a straight share sale, but it could apply if for example there is an asset sale prior to the share sale.  A TUPE transfer occurs firstly, when all or part of an undertaking or business is transferred and if there is a transfer of an "economic entity" that retains its identity post transfer.  Post the 2006 changes, a TUPE transfer also occurs when there is "a service provision change". 

There has been a great deal of debate in the industry regarding what constitutes an economic entity, and also, whether that entity remains distinct post transfer.  To determine an economic entity, a number of factors may need to be considered. For example, it may be relevant to consider the assets being transferred and consider how important they are to the item being sold, or for a cleaning company, the transfer of employees would be a key factor and for the sale of a farm, the transfer of the land and machinery would be more relevant. Also, as mentioned above, consideration needs to be given to whether the entity is in substantially in the same form post transfer.

In terms of a service provision change, the question arises as to what constitutes ‘a service provision change’.  This could be either an internal or external change, provided it is not just for a one off short term event. How has the service has been provided? Is there a dedicated team which could be treated as an organised group of employees?  If the service is currently being provided by a dedicated team and the new service provider will be undertaking substantially the same work, (even if they change how the work is organised), TUPE is likely to be a risk.

Once the risk has been identified it is usually a question of negotiation between the seller and buyer, working out which employees will transfer, when and how consultation will take place and what liabilities will transfer post the transfer. There is commonly significant negotiation of responsibility for liabilities and indemnities. 

The seller will need to allow the employees time to elect employee representatives and will need to consult with the representatives in good time before the transfer.  The buyer will need to provide details of any impact to the employees arising from the transfer.  Legally the employees are entitled to the same terms and conditions and the buyer cannot simply harmonise terms after transfer.  It is possible to make redundancies, but these should be done post-transfer and in consideration of a number of issues – for instance, the buyer will need to consider all of its existing employees and not just those acquired via TUPE from the seller.

Generally, the buyer or new service provider has the greatest risk in any transaction, since they inherit all employee liabilities - the seller does however have an obligation to provide information to the buyer concerning some of these liabilities. Under the 2006 Regulations, both the buyer and seller can have joint liability in connection with a failure to consult and therefore it is in both parties interest to exchange information.

Although the definitions and the concepts appear complicated, in a large number of TUPE situations the key is to recognise that there is a potential risk and be aware of any liabilities that might be involved.

Janvi Patel, director and employment law specialist at Halebury